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Tuesday, December 14, 2010

A $60 million surplus in transit operations: Wishful thinking or creative accounting

As someone who researches and teaches transit planning, I was simply shocked to see TTC projecting a $60 million surplus for 2010. For this surplus to realize either the principles of accounting have to be held in abeyance or the dictionary’s definition of surplus has to be updated.

TTC is projecting 480 million trips (riders) for 2010, roughly 9 million more riders than it carried in 2009. Even with the fare-hike in January 2010 and the additional 9 million riders, a $442.3 million deficit cannot be turned into a $60 million surplus simply because TTC’s operating revenue per trip will still be around $2, which is not sufficient to generate a surplus. Consider that the operating revenue per trip in 2009 was merely $1.88. This is because not everyone pays the full fare, thanks to volume discounts and lower fares for adults, students and others. In addition, TTC employees make millions of trips a year for work, which contribute to the total annual ridership, but not a dime to the revenue.

Furthermore, in 2009 wages, salaries, and benefits accounted for over a billion dollars in operating expenses, representing over 70% of the total expenses. Because of wage pressures, TTC’s operating expenses will be higher in 2010. The savings in fuel costs and increase in ad revenue are too miniscule to turn TTC’s fortunes.

What is of interest is that the price elasticity of transit demand has been turned on its head. I remember Richard Soberman, the guru of public transportation, mentioning in his lecture at the University of Toronto in 1997 that the price elasticity of transit demand is around –0.3. This suggests that a 10% increase in transit fare may result in a 3% decline in transit ridership, at least in the short run. Well, that’s no longer true for Toronto. A significant fare hike in January 2010 has not been accompanied with a decline in ridership.

One should, however, note that 2008 and 2009 witnessed a slowdown in economic activity, which often coincides with low transit ridership. The projected increase in transit ridership in 2010 could simply be the result of economic growth, as well as population growth, in the GTA.

Also of interest is the fact that TTC is suggesting that the increase in ridership has been realized on bus routes in the suburbs. I have long argued for a greater recognition of buses as the lynchpin of transit systems. Without the feeder bus networks, subways would simply collapse.

Globe and Mail, December 14, 2010

John Lorinc: The TTC is cruising toward an unprecedented $60-million surplus for 2010 thanks to a combination of increased ridership, stronger ad sales, cheaper fuel and the surprising resilience of Toronto commuters in the face of last winter’s controversial fare hikes.

“We've had surpluses [in the past], but nothing this big,” said TTC general secretary Vince Rodo.

The results are part of TTC chief general manager Gary Webster’s third-quarter report, to be presented at the commission’s inaugural meeting Wednesday.

What’s less clear, however, is whether Mayor Rob Ford and his budget chair, Mike Del Grande, will now ask the TTC to make do with a smaller subsidy for 2011 in light of the agency’s surprisingly robust performance. Mr. Del Grande couldn’t be reached for comment Monday.

The TTC last year received a $430-million operating subsidy from council, and a further $83-million for Wheel-Trans. “We’re going to be asking for the same subsidy level we asked for in 2010,” TTC spokesperson Brad Ross said.

But new TTC chair Karen Stintz appears to be leaving the door open for a rollback. “The commission will consider the options presented by the surplus at the January meeting,” said a spokesperson for Ms. Stintz.

Mr. Rodo says the TTC’s fare revenues were $41-million ahead of projections for 2010, with a record-setting 480 million riders expected this year or about four per cent more than the agency had estimated. High unemployment and fare hikes, such as the one imposed earlier in the year, generally result in fewer riders. But Mr. Rodo said the TTC benefited because many Torontonians are looking to save money, either by taking transit or purchasing Metropasses.

Increased traffic on bus routes accounted for the bulk of the ridership growth, he added. To meet demand, TTC officials cancelled two rounds of service reductions planned for March and September.

The TTC also saw a $3-million bump in its advertising revenues because of the ridership growth.

On the expense side of the ledger, Mr. Rodo said TTC officials have moved to purchasing diesel on the so-called spot market rather than locking into longer-term futures contracts. Typically, futures contracts allow the TTC to hedge against rising energy prices. But in recent months, the agency has found it more economical to buy short-term supplies.

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About Me

I am an associate professor at the Ted Rogers School of Management at Ryerson University. I am the author of Getting Started With data Science: Making Sense of Data with Analytics.
My academic interests are analytics, housing and transport markets in urban contexts. My other interests are South Asian culture, politics, and economics.